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Wal-Mart Stores (NYSE:WMT), the world’s largest retailer, just announced a big slide in profits, and shares are slumping this morning as a result. The reason? The king of low-cost retail is being forced to push prices even lower amid discount competition and penny-pinching consumer habits.

This is just the latest in a long line of disappointments for the big-box giant in recent years. You would think that amid weak spending, Wal-Mart would be king…. But think again.

Here are the latest details: Fiscal fourth-quarter profit for Wal-Mart fell 15%. The decline was due to “price-matching” to compete with smaller discount chains like Dollar General (NYSE:DG) and Dollar Tree (NASDAQ:DLTR), as well as costs related to advertising and other initiatives to boost sales. Profit margins were squeezed as a result.

The competition from smaller chains has been really weighing on WMT across the last few years. Consider that Dollar General is up over 90% since 2010, and Dollar Tree is up almost 180% in that same period. Meanwhile, Wal-Mart has squeaked out only about 12% returns – less than half the 25% from the Dow Jones Industrials since January 1, 2010.

On the plus side, profits did grow compared with the previous reporting period. And those profits even beat Wall Street estimates. But the loss of margins and the persistence of competition from smaller discount chains are obviously disturbing. And the Q4 slide comes after Wal-Mart’s third-quarter earnings fell by nearly 3%.

Another plus: WMT saw a bump in total sales, too. The company’s relaunch of layaway on toys and electronics during the holiday season helped there.

However, some are skeptical. Part of the revenue jump is attributed to acquisitions – not organic growth. Wal-Mart is looking beyond North America, with the purchase of Netto stores in the U.K. and Massmart in South Africa. Obviously, if you roll in reasonably large chains like this, you’re going to see a lift to headline revenue.

And though internationally Wal-Mart sales jumped 13% to $35.5 billion, currency exchange rates reduced that gain to just 8.5% — another weight offsetting what would otherwise be decent performance.

Long story short: Wal-Mart hasn’t been connecting with American consumers. And while the company is seeing international strength, it’s not enough to entice Wall Street into supporting this stock.

It’s not for lack of trying. We just saw the launch of a new Wal-Mart packaging scheme to fight obesity and appeal to health conscious consumers. In 2011, it refocused on its low-cost roots with a new ad campaign. And, of course, domestic same-store sales – that is revenue at locations open for over a year to exclude “Grand Opening” bumps – had declined in 9 out of the last 10 quarters before this report.

Perhaps recent efforts to compete with Dollar General and Dollar Tree will pay dividends in the long term. And perhaps international acquisitions will start to boost the bottom line soon.

But in the short term, investors aren’t very impressed with Wal-Mart. After languishing around $50 a share for the better part of two years, WMT rallied 15% in the last several months to set a new high and touch pre-recession stock values.

After today’s report and resulting declines, however, it looks like Wal-Mart’s turnaround was short lived.